GAF Ends Carbide Bid; Emerges as Big Winner
GAF dropped its hostile effort to acquire Union Carbide on Wednesday but it emerged the clear winner in the battle.
GAF said it will realize as much as $200 million in profit from its purchase of Carbide shares, while Carbide crawls away from the fight deep in debt and stripped of its prized consumer product lines.
Carbide, based in Danbury, Conn., faces a future fraught with uncertainty from its huge debt load and a potential multibillion-dollar liability from the December, 1984, accident at its Bhopal, India, chemical plant that left more than 1,700 dead.
One analyst described Carbide as “dismembered and demoralized,” a victim of its own “scorched earth” defense against GAF.
Samuel J. Heyman, GAF’s chairman and chief executive, said Wednesday that buying Carbide no longer made sense in light of the chemical giant’s massive stock repurchase and restructuring program. The Carbide plan, announced last week as a defense against GAF’s $4.8-billion takeover offer, closely paralleled Heyman’s own plans for the company.
“Now that Union Carbide has decided to pursue a program similar to that contemplated by GAF, and the market price of Carbide shares is reflecting these actions, we no longer believe it to be in the best interests of our shareholders to continue to compete against Carbide’s own exchange offer,” Heyman said in a statement.
He left open the possibility of a takeover try after Carbide’s asset sale and stock repurchase program is completed. Analysts suggested, however, that he will happily pocket the profits from his run at Carbide and direct his acquisitive impulses elsewhere.
Heyman took control of GAF, a maker of chemicals and building materials based in Wayne, N.J., in a 1983 proxy contest.
GAF will retain a 10% interest in Carbide, making it the much-larger firm’s biggest shareholder, Heyman said. He added that GAF expects to take an $81-million first-quarter after-tax profit from its Carbide investment. GAF’s holdings in Carbide, at their peak, amounted to 6.7 million shares, which it bought at an average price of $51 per share.
In composite trading Wednesday on the New York Stock Exchange, Carbide closed at $71.50 a share, down $1.75. GAF sold for $49.25 a share at the end of trading, down $2.625.
In a statement, Carbide Chairman Warren M. Anderson said he believed that Carbide’s recent actions were consistent with the firm’s desire to increase shareholder value while repositioning the company for the future.
“We can proceed without costly distractions now,” he said.
Heyman’s takeover bid, launched Dec. 9, forced Carbide to hurry a restructuring plan announced last summer and put up for sale its consumer products operations, which make Eveready batteries, Glad plastic wrap and Prestone and Simoniz automotive products.
In 1984, the consumer products divisions contributed $1.9 billion, or 20%, of sales and $226 million, or 23%, of total profits. Carbide said this week that 45 firms have expressed interest in buying the units, which are expected to sell for between $2 billion and $2.5 billion.
Much Smaller Sales
The remaining company will have annual sales of $6 billion to $7 billion, rather than the more than $9 billion in revenue of recent years.
The consumer lines, with their widely accepted brand names and steady sales, were to be the core of Carbide’s transformation from dependence on highly cyclical chemical and industrial products businesses into a diversified supplier of technology and consumer goods.
The Carbide that remains will be vulnerable to the next swing in the economy, according to chemical industry analyst Garo Armen of E. F. Hutton.
“There’s going to be a great deal of risk. Any sign of an economic downturn could spell trouble,” he said.
Armen added that, without the cash flow provided by the consumer lines, the company won’t have the resources to diversify.
Some on Wall Street expressed the opinion that GAF lost the takeover fight by underestimating the lengths to which Carbide was willing to go to stay independent and falling prey to a brilliant defensive strategy designed by Carbide’s investment bankers and lawyers. Others said GAF clearly won the battle by walking away with a huge profit while Carbide crippled itself.
At Carbide, “management is entrenched, presiding over a demoralized group of employees with a highly leveraged balance sheet and product mix,” said Peter Butler, who follows Carbide and GAF for the investment firm Paine Webber Mitchell Hutchins.
“If you want to call that brilliant, fine. But you should ask the Carbide employees what they think of this defense, to load the company with debt, sell off the best divisions and sacrifice the future for the sake of entrenching incompetent management.”
